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UK STUDENT HOUSING RENTAL UPDATE
Headline rental growth for purpose built student accommodation (PBSA) increased by 2.55% for the 2017/18 academic year, according to Knight Frank’s Student Property Index.
The index is a comprehensive study of PBSA rents in the UK, analysing year-on-year growth across 75 cities on a room-by-room basis. We acknowledge that some operators employ dynamic pricing models and that rents may be subject to change.
Whilst the macro picture shows steady rental growth, individual markets are seeing varying levels of performance, largely dependent on supply and demand dynamics within cities.
Generally speaking, cities with large,growing student populations and modestdelivery pipelines, such as Manchester, are outperforming the wider market in terms of rental growth. Cities with a large volume of existing PBSA stock, as well as healthy development pipelines, such as Newcastle, are reporting more modest growth.
However, while markets have experienced different degrees of new supply relative to demand over the last year, it is worth noting that the change in rental values across the sector has been positive in 95% of the cities covered by the index, and that occupancy rates in PBSA across the UK remain high.
Nationally, a further 25,000 student bedrooms will be completed for the start of the 2017/18 academic year, with a further 14,000 under construction for 2018/19. In total, these new additions are equivalent to approximately 7.4% of existing stock.
We acknowledge that there are a number of additional factors at play on a local level when it comes to rental growth, and we have examined some of these markets according to their characteristics in more detail later in this report.
Meanwhile, stronger rental growth for en-suite and non en-suite rooms with shared kitchen facilities compared with self-contained studios in 2017/18 (figure 1), reflects higher levels of demand at the more affordable end of the market. We anticipate that this trend towards affordability, among both occupiers and developers, will continue.
Despite a strong PBSA development pipeline in most key university towns and cities, rental growth has been positive in 2017/18. We anticipate that rental growth in the sector will continue to be driven by growing student numbers – the latest data from HESA for 2015/16 shows the largest recorded numbers of both domestic and international students enrolled on courses at UK higher education institutions.
STUDENT HOUSING CONTINUES TO ACHIEVE POSITIVE RENTAL GROWTH The UK purpose built student accommodation sector continues its bull run by posting positive rental growth across all core investment markets.
Key factsRents for purpose built student accommodation have increased by 2.55% on average for the 2017/18 academic year
An imbalance between supply and demand has been the primary factor driving rental growth
Cardiff topped the table for annual rental growth at 5.80%, followed by Bath at 4.92%
Higher demand for more affordable student accommodation resulted in stronger rental growth for en-suite and non en-suite rooms, compared with self-contained studios
JAMES PULLAN Head of Student Property
“ Affordability will be a key theme for the next few years. Construction cost rises make delivery of truly affordable accommodation a genuine challenge.”
Source: Knight Frank
FIGURE 1
UK purpose built student accommodation rental growth 2017/18, by bedroom type
FIGURE 2
Development pipeline of purpose built student accommodation Projected volume of new student bedrooms
TOTAL NUMBER OF BEDROOMS UNDER CONSTRUCTION (MAY 2017)
TOTAL NUMBER OF BEDROOMS
25,000
39,000
TO BE DELIVERED IN 2017
Source: Knight Frank
2.32%
2.75%
2.19%
2.55%
NON EN-SUITE EN-SUITE STUDIO WHOLE OF MARKET
% GROWTH 2017/18
SOUTHAMPTON
SHEFFIELD
NEWCASTLE
NOTTINGHAM
MANCHESTER
LONDONCANTERBURY
LIVERPOOL LEEDS
GLASGOW
EXETER
EDINBURGH
DURHAM
BIRMINGHAM
COVENTRY
LEICESTER
CARDIFF
BRISTOL
ABERDEEN
PLYMOUTH BATH
2.46%
1.54%
4.92%
2.54%
2.81%
4.04%
5.80%
3.40%
2.34%
3.18%
2.04%
1.70%
3.58%
3.56%1.92%
2.65%3.12%
0.85%
0.55%
2.05%
0.84%
2017/18 HEADLINE RENTAL GROWTH
UK STUDENT HOUSING RENTAL UPDATE 2017
CORE MARKETSWhat: Strategic cities containing dual or multiple well-regarded universities high in the performance rankings, and large numbers of students. These markets have benefited from increases in student numbers but limited historic PBSA development.
Where: Manchester, Birmingham, Edinburgh
Manchester:
NON EN-SUITE
3.33%
EN-SUITE
2.87%
STUDIO
0.09%WHOLE MARKET
3.12%3.53%
MATURE MARKETSWhat: Strategic cities containing dual or multiple well-regarded universities, and large numbers of students. These markets have a historically high availability of development land, and have seen large amounts of PBSA development in recent years. It is important that new development is targeted at the greatest pool of occupier demand.
Where: Liverpool, Newcastle, Leeds
Newcastle:
NON EN-SUITE
0.92%EN-SUITE
0.87%STUDIO
0.55%
WHOLE MARKET
0.85%
PRICE SENSITIVE MARKETSWhat: Cities that have experienced a boom in development but do not have the underlying demand for large amounts of stock at the luxury end of the market. Affordable products are the primary driver of rental growth in 2017/18, with the strongest performance coming from en-suite and non en-suite rooms.
Where: Nottingham, Glasgow, Aberdeen
Nottingham:
NON EN-SUITE
2.15%
EN-SUITE
2.97%
STUDIO
0.09%WHOLE MARKET
2.34%
EMERGING MARKETSWhat: Relatively immature markets in terms of their provision of PBSA they can be characterised by good quality universities but low PBSA stock availability. This can often be as a result of more stringent planning regimes in these towns and cities. Rental growth in these locations has outperformed the wider UK average and is likely to continue to do so as a result of the imbalance between supply and demand.
Where: Bath, Canterbury, Cardiff
Bath:
2.32%
NON EN-SUITE
5.49%
EN-SUITE
4.69%
STUDIO
4.08%
WHOLE MARKET
4.92%
STUDENT PROPERTY
James Pullan Head of Student Property +44 20 7861 5422 [email protected]
Neil Armstrong Partner +44 20 7861 5332 [email protected]
James Woolley Associate +44 20 7861 5448 [email protected]
Rupert Downes Surveyor +44 20 7861 5403 [email protected]
RESIDENTIAL RESEARCH
Oliver KnightAssociate+44 20 7861 5134 [email protected]
Matthew Bowen Associate, Research Consultancy +44 11 7945 2641 [email protected]
Important Notice© Knight Frank LLP 2017 – This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.
As the Knight Frank data demonstrates, the UK purpose built student accommodation market is enjoying a strong run. This trend is borne out in Liberty Living’s own numbers, which have shown positive rental uplifts and average occupancy of 99% over the last 10 years. Like Knight Frank, we believe in the long term prospects of the student accommodation market and see the highest demand concentrated in major UK university cities, from students requiring well priced en-suite accommodation.
Our strategic focus over the last 10 years has been on investing in en-suite accommodation at mid-market rental price points. Earlier this year we completed the acquisition of the Union State portfolio from Blackstone, comprising c.6,400 beds of which nearly all was en-suite accommodation. This has taken our overall portfolio to c.25,000 student bedrooms of which c.90% is en-suite accommodation.
UK STUDENT HOUSING – RENTAL UPDATE
LIBERTY LIVINGWe see continuing demand for this type of product, driven by affordability but also student and university preferences. We have learnt that providing facilities for students to study and socialise together is a key part of the university experience, and it is core to our model.
We also believe that strong relationships with academic institutions will be increasingly important, as universities look to trusted providers with an excellent track record, strong balance sheet and a long-term commitment to the student accommodation sector. We currently operate with over 35 university partners and expect this number to continue to rise.
What is particularly interesting in Knight Frank’s research is the emerging distinction between different types of student accommodation. We believe that affordable, well-located, scale assets, backed by a strong operating platform which provides a responsive service for students, parents and universities will continue to perform well.
Liberty Living looks forward to releasing its rental pricing for the 2018/19 academic year in October, with expectations for another year of positive growth.
Knight Frank Research Reports are available at KnightFrank.com/Research
The Wealth Report - 2017
201711th Edition
The global perspective on prime property and investment
TH
E W
EA
LTH
RE
PO
RT
2017
RECENT MARKET-LEADING RESEARCH PUBLICATIONS
UK Res Dev Land Index - Q1 2017
UK Retirement Housing - Update: October 2016
UK Student Property Report - 2017
PETER CROSS Investment Director, Liberty Living
RESIDENTIAL RESEARCH
RESIDENTIAL DEVELOPMENT LAND INDEX
The divergence between the performance of greenfield and urban land markets across England has become less pronounced in recent months. However, the markets remain relatively distinct, with different drivers.
Urban residential land values, based on sites across Birmingham, Manchester, Leeds, Bristol and outer London, continue to rise, boosted by the demand for housing in these cities, which, in many cases, have been historically undersupplied.
While urban land values have risen by a cumulative 21% since the beginning of 2015, the pace of annual growth in the urban land market has eased to 3.9%, down from 13.4% in Q1 last year. The quarterly increase in prices was 2.9%, the strongest quarterly growth in a year, driven by outperformance in the Birmingham and Leeds markets.
Average values in the greenfield land market rose by 1.4% in Q1, the first quarterly growth since December 2014 albeit at levels which do not necessarily indicate a substantial change of direction in the market. As with the urban land market, this growth is driven by particular areas of the country, especially the North and
Midlands, where the appetite for land and limited supply is putting upward pressure on pricing.
More generally across the market, housebuilders remain well-stocked in terms of land for their development pipelines. The uncertainty over the future of Help to Buy after 2020 is also influencing land buyers’ risk assessments as it may affect the development economics of any schemes which are developed on land purchased now. Once there is more certainty about whether the scheme will continue or not, there is likely to be a rise in activity as pent-up demand comes back to the market.
Another consideration also weighing on land values is the continued rise in construction costs, which are prompting a revision to development economics and appraisals in some cases.
In prime central London, average values have dipped by 14% since Q3 2015. However, much like the market in 2010, there are signs that some investors are looking to return to the market as they perceive more stable pricing in the sales market. It will be interesting to note the relative performance of zone 1 compared to the rest of the capital over the next 12 months.
PRICE DECLINES IN PRIME CENTRAL LONDON ABATE Average land values in prime central London were unchanged in Q1, ending five consecutive quarters of prices declines. Meanwhile, urban brownfield land prices continued to climb between January and March, although the annual rate of growth is slowing.
Key facts Q1 2017Urban development land values rose by 2.9% between January and March taking the annual change to 3.9%
Prime central London values were unchanged in Q1, after five consecutive quarters of declines in pricing. Values are down 10.1% year-on-year
Greenfield development land prices in England are down 1.2% on the year, although there was a 1.4% increase in average values in Q1
GRÁINNE GILMORE Head of UK Residential Research
“ A consideration weighing on land values is the continued rise in construction costs, prompting a revision to development economics.”
Follow Gráinne at @ggilmorekf
For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief
-8
-6
-4
-2
0
2
4
6
English GreenfieldPrime Central LondonUrban Brownfield
Mar
-15
Jun-
15
Sep-
15
Dec
-15
Mar
-16
Jun-
16
Sep-
16
Dec
-16
Mar
-17
Source: Knight Frank Research
FIGURE 2
Quarterly change in average values
Source: Knight Frank Research / RICS
FIGURE 1
Average change in development land values Indexed (100=Q4 2104)
60
70
80
90
100
110
120
130
Dec
-14
Mar
-15
Jun-
15
Sep-
15
Dec
-15
Mar
-16
Jun-
16
Sep-
16
Dec
-16
Mar
-17
English GreenfieldPrime Central LondonUrban Brownfield
The need for more housing across the country has moved firmly centre-stage as Prime Minister Theresa May underlined in her speech at the 2016 Conservative Party Conference. She said: “There is an honest truth we need to address. We simply need to build more homes.”
The supply of new housing does not match projected demand. But within this, there is also a need to focus on the type of housing need, looking at demand in terms of demographics as well as overall numbers.
RESIDENTIAL RESEARCH
RETIREMENT HOUSING UPDATE: OCTOBER 2016
ACROSS THE HOUSING SPECTRUMThe supply of housing remains a priority for policymakers, and amid tentative signs that the spectrum of housing demand is being taken into account, new Knight Frank analysis shows that the stock of private retirement housing accounts for just 0.6% of dwellings in the UK.
While much attention is quite rightly paid to the housing shortage for first-time buyers trying to climb onto the property ladder there is a less headline-grabbing trend which is just as notable in the market – the shortage of homes specifically designed for older people.
While the ‘retirement housing’ market may seem specialised, creating homes for older people has wider implications for an interconnected market – not only does it help address the very real demand among
‘
“ Increasing the provision of housing suitable for older people will have direct benefits across the whole housing market, for all generations.
There is significant appetite in the market to develop and invest in the retirement housing sector and provide specialist and aspirational housing that the older generation now demands.
Now that the resolution of the OFT and Law Commission investigations into event fees in the retirement housing sector looks to be on the cards, we anticipate significantly increased levels of activity across the sector.
However it remains to be seen whether the scale of investment will begin to re-balance the current mismatch between supply and the pool of demand in this market.”
EMMA CLEUGH Head of Institutional Consultancy
SCOTLAND
WESTMIDLANDS
EASTMIDLANDS
YORKSHIREAND THEHUMBER
NORTHEAST
NORTHWEST
EAST OFENGLAND
SOUTHEAST
LONDONSOUTHWEST
WALES
NORTHERNIRELAND
98%
81%
78%
86%
68%
61%
82%
73%
86%
85%
91%
2%
1%
1%
1%
1%
1%
1%1%
1%
1%
3%
2%
2%
1%
84%
14%
16%
20%
11%
12%
7%
12%
25%
17%
37%
30%
OPEN MARKET SALE INTERMEDIATE TENURE
OTHERAFFORDABLE HOUSING
Stock of retirement housing Split by tenure
Source: Knight Frank / EAC
UK STUDENT HOUSING INVESTMENT UPDATE
Some £3.1 billion was invested in the UK Purpose Built Student Accommodation (PBSA) market in 2016, more than double the levels seen in 2013 and 2014.
Whilst total spend last year was lower than the record of £5.1bn seen in 2015, it demonstrates that demand for PBSA remains strong. Investment in 2015 was augmented by a number of exceptional deals on large portfolios made by new entrants to the market.
New investors are continuing to enter the sector and much of the activity last year has been a result of the continued trend for portfolio acquisitions. The data shows that, of the deals concluded in 2016, portfolios represented around 60% of the total.
The biggest single transaction was by Singaporean real estate fund Mapletree which made its first foray into the sector following its acquisition of the Ardent Portfolio for £417m.
Other key transactions in 2016 included Brookfield Property Partner’s acquisition of The Rose Portfolio and Global Student Accommodation’s purchase of the ThreeSixty Portfolio (formerly Knightsbridge). Notably all of the five largest deals were done by
overseas investors with a combined £1.49bn of investment.
Funds were the most active investors in the sector over the course of the year investing around £1.4bn on 20 transactions, a figure which accounted for 47% of total investment. Private equity firms accounted for 24% of the total spend, with institutional investment marking up a further 12%.
REITs, such as GCP Student Living and Empiric Student Property, were also active over the course of the year following on from a busy 2015, driving just around £325m of investment, mainly for single-asset deals.
We expect that the market will continue to be driven by bulk purchases as new entrants and existing investors look to consolidate and acquire additional scale.
Forward funding of new developments by investors is an established feature of the market. Such deals trade at a discount to existing investment stock. This allows new developments to take place, although it is still only a small share of the market. As such, we expect a key challenge for 2017 will be the viability of secondary forward funding locations.
INTERNATIONAL EQUITY TO DOMINATE 2017 INVESTMENTThere is competitive market tension for prime operational assets with aggressive bidding from North American private equity firms and institutions in particular
Key facts 2017A total of £3.1 billion was invested in the UK student accommodation market in 2016
Portfolio acquisitions accounted for around 60% of the total investment
Funds invested around £1.4bn into the sector over the course of the year
A key challenge for investors in 2017 will be stock availability
JAMES PULLAN Head of Student Property
“ We expect the market will increasingly be driven by the REITs and pension funds as economies of scale assist these institutional buyers to create increasingly large portfolios with efficiencies of operation, branding and marketing.”
Source: Knight Frank
FIGURE 1
Total value of investment by region, 2016
FIGURE 2
Investment volumes by purchaser types, 2016
£3.1bn
PRIVATEEQUITY
£0.73bn FUND£1.4bn
INSTITUTIONAL£0.37bn
REIT£0.32bn
OTHER£0.21bn
£3.1bn
INSTITUTIONAL£0.37bn
FUND£1.4bn
OTHER£0.21bn
PRIVATEEQUITY
£0.73bn
REIT£0.32bn
GREATER LONDON £308.2M
SCOTLAND £218.1M
SOUTH EAST£185.2M
WEST M
IDLA
NDS
£126
.6M
NORT
HERN
IREL
AND
£100
M
EAST
MID
S
£79.
0M
YORKSHIRE
£72.2M
NORTHWEST £67.5M
SOUTH
WEST
£62.8M
NORTH EA
ST
£59.7
7M
EAST
£3
3.5M
£1.76bnPortfolios acrossmultiple regions
Source: Knight Frank
